Julius Baumann
6 August 2008
Johannesburg — WHILE the international airline industry faces losses of more than $6,1bn this year, a strong rand is likely to shield domestic airlines from the full brunt of high oil prices and slow demand.
"If oil prices and the rand hold at these levels during August, the airlines will achieve a significant jet fuel cost saving in September and October, possibly close to April's prices," group CEO of low-cost airline 1Time, Glenn Orsmond, said yesterday.
Oil has fallen from a record $147 to $117 while the rand has strengthened from R8,14 to the dollar on June 12 to R7,22 on Monday. Yesterday, the currency lost some ground and was trading at just below R7,40 to the dollar.
Gidon Novick, joint CEO of Comair, operators of British Airways and kulula.com, said every 1c that the rand strengthened against the dollar translated into a R1m improvement to the airline's bottom line.
He pointed out that while fuel costs was Comair's biggest dollar-dominated cost, a stronger rand had also eased the airline's aircraft leasing, parts and maintenance costs which were all priced in dollars.
However, he said it was still too early for the strong rand, coupled with the weaker oil price, to have an effect on ticket prices.
"We will keep an eye on it, and if the rand remains firm and the oil price weaker, we will be able to pass those savings onto passengers."
This week the International Air Transport Association (Iata) released international traffic data for June that showed a continued slowing of demand growth for air transport, with passenger demand growth falling to 3,8%, the lowest since 2003.
Passenger load factors fell to 77,6%, 1,2 percentage points below the 78,8% recorded for June last year.
"Although the passenger demand grew by 3,8%, this is the slowest growth that we have seen since the industry was hit by the Sars (Severe Acute Respiratory Syndrome) crisis in 2003. With consumer and business confidence falling and sky-high oil prices, the situation will get a lot worse," director-general and CEO of Iata, Giovanni Bisignani, said.
"The airline sector is in trouble. Losses this year could reach $6,1bn, more than wiping out the $5,6bn that airlines made last year . Falling demand and rising costs are reshaping the industry," he said .
"To survive the crisis, urgent action is needed."
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